Senate Democrats, who are united in support of higher income tax rates for millionaires and billionaires, are paralyzed by disagreements on how to tax the estates of the wealthiest Americans.

Lobbied by business owners and billionaires, Democrats including Mark Pryor of Arkansas and Mary Landrieu of Louisiana resisted a proposal from President Barack Obama to tax individual estates of more than $3.5 million -- roughly three in 1,000 -- at a top rate of 45%. The split among Democrats, who control the Senate, will give Republicans more influence on the issue after the Nov. 6 election. ...

As a result, when the Senate votes as scheduled at 2:15 p.m. in Washington today on a bill to extend income tax cuts that expire Dec. 31, the proposal will be silent on the estate tax. Democratic leaders in the Senate sidestepped the estate tax to focus on an issue on which almost all of them agree: Obama’s plan to let income tax cuts expire for the top 2%.

Democrats who balked at Obama’s proposal say they are worried about the effect of increasing the estate tax rate and lowering the per-person exemption to $3.5 million from $5.12 million for farms and small businesses. Republicans favor the $5.12 million exemption, which means a compromise on the issue would be more generous to estates than Obama’s plan.

One other reason, said Paul Caron, a law professor at the University of Cincinnati, is the “brilliant” public-relations move by estate tax opponents, who rebranded the issue as the “death tax,” making it unpopular even among those who will never have enough wealth to pay it. ...

Additionally, home-state interests such as Montana ranchers, represented by Democratic Senators Max Baucus and Jon Tester, and the billionaires of Wal-Mart Stores Inc. (WMT)’s founding Walton family in Arkansas shape lawmakers’ positions on the issue, said Michael Graetz, a law professor at Columbia University in New York who co-wrote a book on the politics of the estate tax. ...

“For whatever reason, I think Democrats get kind of weak in the knees on the estate tax, and I don’t understand exactly why,” Caron said. “The estate tax really is millionaires and billionaires, so I don’t understand the optics and the politics.” Graetz said senators personally know successful business owners who are worried about the tax, and that segment of the population -- not the billionaires -- has become the dominant narrative about the estate tax. “It’s not small business owners that are paying the tax,” Graetz said. “It’s small business owners that are making the tax so difficult to impose.”

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Comments

Isn't it obvious to everyone that billionaires can easily escape the estate tax by creating foundations and trusts? The wealthier you are, the easier it is to create estate plans that completely bypass the estate tax.

The less wealthy you are, the greater the likelihood of getting pinched.

Estate taxation has done nothing to reduce the concentration of wealth. It should be abandoned.